Deferred vs. Waived Interest: Not All 0% APR Credit Cards Are Created Equal

When you look at offers for 0% APR credit cards, be sure to check what’s really being offered.
Dec 17, 2014

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The appeal of zero-interest credit card offers is apparent in the sheer volume of offerings. The deals come in the mail, pop up during online searches, greet you at the store checkout line.

When you hear “12 months same as cash,” however, it’s time to pause and check what’s really being offered: deferred interest or waived interest?

Picture this: You walk into a store and they offer a 0% credit deal on a new TV. Sounds just like the zero-interest credit card you got last year to transfer the balance from a high-interest card. You figure: same difference. So the TV gets bought and you pay the monthly minimum on time, confident you’ll be able to lower the balance to a comfortable level before interest rates kick in.

But when the 0% interest period ends, BOOM—the amount on your bill suddenly jumps far above what you budgeted. What’s going on here?

You didn’t read the fine print. If it’s any consolation, that’s what the companies financing your TV “deal” were counting on.

‘Deferred’ doesn’t mean ‘never’

In-store offerings of 0% financing for six, 12 or 18 months often are a species of deferred-interest credit cards. Yes, you pay no interest during the introductory period. But if you don’t pay off the entire balance before the end of the period, you are then liable for the full weight of the purchase and the total interest, retroactively accrued from the day you bought that item. The interest was simply “deferred.”

That’s different from true 0% APR credit cards, in which interest payments are waived during the promotion period on the balance on the card and any purchases during that time, so long as you make your monthly minimum payments on time. Here’s a great tool to help you calculate the real cost of zero-percent credit card deals.

Nerd tip: Any time you sign up for a zero-interest credit card or purchase, verify whether it’s a deferred plan. If it is, plan to pay the full balance before the 0% promotional period ends.

Check the date and interest rate

“Your credit card company must tell you the date by which you must pay off your balance to avoid being charged deferred interest. That information must appear on the front page of your bill,” the Consumer Financial Protection Bureau advises. “Certain deferred interest promotions may run by weeks instead of months, so they might have a different ending date from your regular monthly payment due date.”

Also look at the interest rate after the zero-interest promotion expires. Some in-store credit cards have interest rates approaching 30%, which can be a nasty surprise down the line. You may better off using an existing credit card with a lower interest rate.

The takeaway: Deferred-interest credit cards are a good move for short-term purchases—if you can pay off the full balance before the zero-percent deal ends.

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